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You work for a global manufacturing company that sources raw materials from inte
You work for a global manufacturing company that sources raw materials from international suppliers and sells its products in multiple countries. The company recently experienced a substantial exchange rate fluctuation that affected its financial results.
The company entered into a significant foreign currency transaction to purchase raw materials. However, by the time the payment was due, the exchange rate had moved significantly against the company, resulting in unexpected costs.
Based on this scenario, discuss the following in your initial post:
How should the company account for this unfavorable exchange rate movement in its financial statements?
What are the potential implications on the income statement, balance sheet, and cash flow statement?
Discuss possible hedging strategies the company could have employed to mitigate the foreign exchange risk associated with this transaction.
Which hedging instruments or techniques would you recommend and why?
How would these strategies have affected the financial results in this scenario?
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